Economists see India's GDP growth near 7.6% in Apr-Jun

NEW DELHI: India's gross domestic product during April to June is expected to increase at its slowest pace in six quarters as interest rate hikes, inflation and global slowdown begin to impact growth, according to an ET poll.

The country's quarterly GDP is likely to grow at a median 7.65%, says a survey of 14 economists, most of whom expect the annual growth to range between 7.5% and 8%. The RBI has pegged the full year's growth rate at 8%.

Growth is expected to decelerate in the coming two quarters with a possible pick-up in the last three months of the current fiscal. "Domestic demand is expected to slow appreciably over the coming quarters as the full impact of the monetary and fiscal tightening takes hold. That said, we expect some uptick in the private investment cycle later in the fiscal as capacity constraints are increasingly binding," said Sajid Chinoy, India Economist at JP Morgan.

Besides, Q1 growth would also be affected by the negative base effect as last year the economy had expanded by 9.3%, according to Kaushik Das, India economist at Deutsche Bank.

GLOBAL UNCERTAINTY

Most economists are cautious in their outlook as the external environment had become very uncertain in the last few weeks.

While the US growth in the first quarter has been revised sharply down to 0.4% from 1.9%, the second quarter figure for the world's largest economy is pegged at 1.3%, below street estimates of 1.8%. In Europe, the sovereign debt crisis shows little signs of resolution as consensus on a single fiscal authority looks difficult. Besides, upcoming elections in Germany and France, the two strongest euro-zone nations, have also added to the uncertainty.

The future trajectory would be dictated by global events and would test our resilience in the second half of the year," said DK Joshi, chief economist, Crisil.

While some respondents raise the possibility of a double-dip recession in the US, most economists said the probability of such an event was low. "Our base case scenario is not for recession in the US," said Samiran Chakraborty , chief economist, Standard Chartered.

There is one silver lining, though. Exports earnings in April to July have reached $108.3 billion, up 54%, while imports have risen 40% to $151 billion, compressing the trade deficit to $42.7 billion. "Exports have diversified and we do not expect the growth to completely fall off, though some moderation would be likely," said Shubhada Rao, chief economist, Yes Bank.

RATE HIKE IMPACT IN Q2, Q3

In the coming days, rate-sensitive sectors, such as automobiles and construction, could bear the brunt as the full effect of the Reserve Bank's rate hikes is yet to play out. As it is, car sales contracted in July while overall industrial growth has also been subdued at 6.6%. "We will see some dampening effect of the rate hikes in the first quarter but there can be a potentially pronounced effect in the coming two quarters,'' said Siddhartha Sanyal chief economist, Barclays Capital

Economists expect another rate hike in the next monetary review on September 16, as commodity prices have not retreated and overall growth trajectory still seems stable. Agriculture is expected to pick up the slack in the first quarter as some economists estimate the sector to grow in high single digits.